SMT nicely spots the anomaly in price action
- Arup Nag
- Nov 13, 2016
- 2 min read
13th November 2016
The key to successful trading consists of two things only. The first step is making an educated guess (sometimes called forecasting) on the future price movements which should be based on rock solid logical foundations. But one should not be carried away by his capability of accurately forecasting the market. That's why the second important step is taking positions with proper risk control in place. If these two aspects are properly taken care of in the long run, one is bound to make money here.
So far I was mostly focusing on spotting divergences between daily closing prices and the SMT values. However, after carefully analyzing the chart I spotted four incidences where SMT indicated big reversals ahead simply by moving into the opposite directions. In general, by the rule of positive correlation, SMT should move in the same direction as the market is moving (though with a varying speed and thereby creating divergence scenarios). In these four incidences it moved in the opposite directions and in the following day or within next 2 days we have seen big reversals. We have to keep in mind that SMT is not price derived i.e, not any statistical calculation of the past price actions (which has really little value for future prediction). SMT actually quantifies the big speculators' current sentiment and summarizes their current positions based on that sentiment. Therefore, if that sentiment changes or completely reverses BEFORE it is reflected in the price action, SMT tries to spot that in advance. Lets have a look at these four incidences.
The four candles are highlighted here on each of those days the SMT moved in the opposite directions giving clear indication of the upcoming change in market moves. Please pay particular attention to the extreme right candle of 10th November when despite a clear jump up day and advanced closing of NIFTY, the SMT was not seemed to convinced with the bullish picture and came down a lot. We saw the effect of the bearish sentiment of the big players (ahead of time) on 11th November when the NIFTY not only gapped down heavily but also closed almost 235 points lower.
In summary, I am gaining more confidence in this indicator.
Tags: hidden divergence, custom indicator, divergence, proprietary trading, futures, trading, smart money tracker, smart money, nifty, indian stock market, forecasting, regular divergence, derivatives, finance, prediction, options, market analysis